Breaking the Bondage of Interest:A Right Answer to Usury, Part 3

Any efforts to advocate alternatives to banking that might extricate nations from the grip of the money-changers are dismissed as “funny money” by defenders of a system that has for centuries resulted in nothing but “poverty amidst plenty,” cycles of economic bust and war, and servitude at every level. Yet there are many examples of states that have broken free and implemented alternative forms of banking that have brought well-being while others have languished in stagnation at best, while paying their hidden masters for the privilege via usury.

Of course it is not in the interest of the financial and economic status quo that any light be shed upon these historical examples, and they are sent down the Memory Hole, or the nature of their financial systems are obscured by focusing entirely on other factors. Hence, while many financial reformers are aware of the way Lincoln funded his war partly through the issue of Greenbacks, few even among banking reformers realize that the Confederacy was also funded with state credit called Graybacks, and that system is obscured by focusing on questions of slavery. Likewise, few understand much about the manner by which Germany extricated itself from socio-economic misery through a new financial system, and the matter is buried by focusing on the Holocaust or the war, and Germany’s reconstruction it is reduced merely to rearmament.

It took a poet, Ezra Pound to explain the history of money more cogently than economists and historians. Pound stated that:

The history of usury begins with the loans of seed-corn in Babylon in the third millennium BC. The first mention I know of a state monetary policy refers to the year 1766 BC when an Emperor of China, in order to alleviate distress caused by famine and aggravated by grain monopolizers, opened a copper mine and coined discs of metal perforated with a square hole. We read that he gave this money to the starving, and that they could then buy grain where the grain was.[1]

Nearly four thousand years later, politicians either do not have the wisdom or the courage to adopt a similar policy for getting food on the table during the Great Depression, or for dealing with the present global debt crisis without getting into further debt and implementing “austerity measures.”

Pound wrote of the Medici bank the Monte di Paschi that had been founded in 1600 and remained standing in his own time: “Siena was flat on her back, without money after the Florentine conquest.” Cosimo, first duke of Tuscany, guaranteed the capital of the bank, using grazing lands as collateral. He underwrote 200,000 ducats, paying 5% to shareholders and lending at 5½%, with minimum overheads and salaries, and profits going back into hospitals and public works.[2]

Of the American Colonies Pound wrote that, “The Colony of Pennsylvania lent its colonial paper money to the farmers, to be repaid in annual instalments of ten percent, and the prosperity that resulted was renowned throughout the western world.”[3] He writes that in 1750 there were sanctions imposed (by the Bank of England) forbidding Pennsylvania from issuing its own scrip, which played its role in fomenting the American revolt.[4]

Guernsey

One of the most successful and enduring examples of usury-free state credit has been that of Guernsey, British Channel Islands, whose banking experiment was initiated in 1820. Guernsey’s banking system was prompted by dire need, the island being in serious financial trouble from the beginning of the 19th Century. Guernsey’s town was undeveloped, the roads were cart-tracks, and there was no prospect for employment. The most serious problem, however, was the encroaching sea that was washing away large tracts of land because of the disrepair of the dykes. Neither tax increases nor further loans were practicable.

However, it was the need to upgrade the Public Market that prompted a committee to report back with a solution in 1816 to issue £6000 worth of States Notes.[5] The committee also recommended that the States Notes be used not only for the new market, but also for Torteval Church, road construction, and other State expenses. The notes’ issue was started in 1820, and was followed by other issues, until by 1837 £55,000 of the Notes were in circulation, debt-free and having created prosperity and development, which in turn stimulated visitors to the island.[6]

Of course there were complaints to the Privy Council that such debt-free issues were being made, but the States Financial Committee gave such good account of the island that the objections were unsuccessful. However, two banks on the island flooded Guernsey with their own notes to undermine the State Notes, and for reasons unknown it was the Island that agreed to limit the issue of its Notes.[7] Just such a tactic used by the North to undermine the Graybacks of the South during the American Civil War caused inflationary problems, but these maneuvers do not discredit the efficacy of state credit. With the outbreak of war in 1914, Guernsey restarted the State Notes issue according to requirements. While StateNotes continue to circulate alongside British Pounds Sterling, there has never been inflation, and the prosperity of the island continues as it has since 1820,[8] operating on minimal taxation.[9]

As mentioned, Lincoln had recourse to the issuing of the Greenbacks during the Civil War. Not so well known is the issue of Graybacks by the Confederate States, backed by cotton. Despite the claim that the Confederacy was under the thrall of the Rothschilds via the Confederate Secretary of State Judah P. Benjamin, nothing could be further from the truth, and the South was at no time beholden to international finance, nor was Benjamin anything less than a patriotic Southerner. As the subject of Confederate finance has been dealt with at length elsewhere I shall not repeat it here.[10]

New Zealand

The election of a Labour Government largely centered on its platform of nationalizing the Reserve Bank and issuing state credit. The 1934 tour by Douglas had a major impact, with organizations such as the Auckland Farmers’ Union and the NZ Legion adopting Social Credit, but in particular the flamboyant, one armed war veteran John A. Lee kept up a continuous agitation for the Party to fulfill its election promises despite the resistance of Prime Minister Joseph Savage and his Finance Minister Walter Nash. Lee had written several pamphlets on banking reform which should serve today as seminal references for banking reformers, but are forgotten, or transgress orthodox Douglasite principles.

The first of Lee’s pamphlets, Money Power for the People, outlined what he hoped the Labour Government would adopt as legislative policy, based upon what the party had presented to voters at the 1935 General Election as official party policy.[11] This was the demand for the “immediate control by the State of the entire banking system,” including the “state issue of credit for production and distribution of commodities”[12] The party’s manifesto for the 1935 election stated:

A planned economy will be of little use if the Government has not the power to carry its plans into effect. Such power will require the control of credit which, if it remains in private hands, can be used to thwart the will of the Government.[13]

As I have remarked upon previously, the Great Depression was a period in which, unlike today with our supposedly more educated populations, people were all talking about the question of finance and banking reform. Lee recalled that the largest political meetings in New Zealand history had been held throughout New Zealand, and the question to the fore was that of money. He vividly related, “Wherever people were gathered,” whether on street corner, in the factory, stock yard or on a tram, “there was discussion about banking and money.”[14]

In Money Power for the People which might be seen as a reminder to the party Caucus of its election pledges, Lee states that the first meeting of the Labour Cabinet in Office in 1936 reaffirmed its commitment to “winning complete financial power as the first move toward a new social order.” Parliament met in March and the following month the Government introduced the Reserve Bank of New Zealand Amendment Bill.[15] The Bill was supposed reform the Reserve Bank that had been established in 1933 on the prompting of the Bank of England as a corporation that included private stockholders, with the directors being a mix of those nominated by the state and those elected by the stockholders. The bank was independent from the State, despite theoretically being a State Bank, at least in the popular imagination, like the Federal Reserve Bank in the USA or the Bank of England. This 1936 Bank amendment bought the private stockholders out “at a handsome profit,” the bank came under State control, and the Board of Directors became “the direct servant of the Government of the day,” who were obliged to fulfill the policies of Government and were subject to removal. The Bank’s function set out in Section 1 of the Act was to “regulate and control credit and currency in New Zealand” for the “economic and social welfare of New Zealand.”[16]

The second part of Lee’s 1937 pamphlet deals with what the Labour Government had achieved over the past year. Lee stated that the Government’s powers had been used cautiously, but that state credit was being provided to the dairy industry account, which worked with the state’s control of the marketing of produce (through marketing boards), and hence there was a guaranteed price for farmers.[17] The Reserve Bank issued the dairy industry state credit, at minor profit, where hitherto the private banks had gained through interest, with the additional factor that the profits that were made by the State on these advances were placed back into a Consolidated Fund. The aim was to eventually reduce the amount of interest to a charge for costs.[18]

Nonetheless, despite these great reforms, the Government was still borrowing from overseas moneylenders, a matter that was never resolved. Lee warned that unless the State assumed sole responsibility for creating and issuing credit, “the debt will be compounded forever” and that “at some future date the Capitalist bailiff will liquidate New Zealand’s social experiment.” That is precisely what happened, ironically, when a “free market revolution” proceeded decades later under a Labour Government, in a typical example of socialists playing lackey to international finance. New Zealand is still in the process of divesting itself of what few state assets remain to pay off debt.

However, there was a great achievement in the funding of the iconic state housing project with Reserve Bank state credit, this one measure being sufficient to resolve 75% of unemployment in the midst of the Great Depression. Lee commented in his 1937 assessment that so far the State Housing project was the only program on which the State had availed itself the prerogative to issue its own credit. An initial £5,000,000[19] of state credit through the Reserve Bank was issued for housing via the Housing Account of the State Advances Corporation.[20] Lee cites Finance Minister Nash as stating to Parliament that the credit would be state issued in entirety as “new money” on which the interest earned in its entirety would return to the State as profit, while the houses would remain in State ownership. In a Government document over a decade later the project was explained as follows:

Reserve Bank Credit: To finance its comprehensive proposals, the Government adopted the somewhat unusual course of using Reserve Bank credit, thus recognizing that the most important factor in housing costs is the price of money – interest is the heaviest portion in the composition of ordinary rent. The newly created Department was able therefore to obtain the use of funds at the lowest possible rate of interest, the rate being 1% for the first £10 million advanced, and one and a half percent on further advances. The sums advanced by the Reserve Bank were not subscribed or underwritten by other financial institutions. This action shaped the Government’s intention to demonstrate that it is possible for the State to use the country’s credit in creating new assets for the country.[21]

Canada

Canada was another British Dominion that had recourse to state credit, and for a much longer period than most others. Canada maintained this state credit system into the 1970s. The state owned Bank of Canada issued up to half of all new money at low interest, which in turn forced the commercial banks to keep interest rates low. This resulted in decades of prosperity. Now the Bank of Canada creates just 2% of the credit. From 1935–1939 the Bank of Canada was issuing most of the nation’s credit, and 62% of the credit during the last years of the War. Until the mid 1970s the Canadian Government continued to create enough new state money to monetarize 20% to 30% of the state deficit.

That ratio is now only 7.5%. While the money supply increases by $22 billion annually, the Bank of Canada now issues less than 2% of that money. It has been estimated that if the Canadian Government had continued to operate such a financial system as she had for around three decades, that nation would today be operating with a surplus of $13 billion.[22]

20. J. A. Lee, Money Power for the People, op. cit. p. 10. Lee’s pamphlets are available from this writer.

21. C. Firth and G. Wilson, State Housing in New Zealand (Wellington: Government Printing Office, 1949).

22. Harold Chorney, Assoc. Professor of Political Economy and Public Policy, Concordia University, Montreal; John Hotson, Professor of Economics, University of Waterloo; Mario Seccareccia, Assoc. Professor of Economics, University of Ottawa; The Deficit Made Me Do It!, “Introduction,” CCPA Popular Economics Series, Editor: Ed Finn, Canadian Centre For Policy Alternatives, 2010. http://lists.topica.com/lists/VOW/read/message.html?mid=813781210&sort=d&start=6327

Related

Related

If you enjoyed this piece, and wish to encourage more like it, give a tip through Paypal. You can earmark your tip directly to the author or translator, or you can put it in a general fund. (Be sure to specify which in the "Add special instructions to seller" box at Paypal.)

4 Comments

Ellen Brown’s Web of Debt Is an Anti-Gold Currency, Pro-Fiat Money, Greenback, Keynesian Tract. Here, I Take It Apart, Error by Error.
Gary North

“Ellen Brown has thrown in the towel. She is no longer willing to argue with me. I finished my critique of her on November 17, 2010. On November 20, she publicly switched sides. She came out in favor of Bernanke, the Federal Reserve System, and quantitative easing.”

“Ellen Brown is devoting her life to a cause. She wants Congress to take over the printing presses and provide 100% of America’s money: fiat money, with no gold or silver backing.”

“I spent almost 200 hours over a two-month period refuting this left-wing lawyer, line by line. I said repeatedly that she is intellectually unreliable. She has just proved my case. She has joined the Federal Reserve’s cheeleaders”

With respect, I am not saying Ellen Brown is absolutely correct, nor am I saying Dr. North is absolutely wrong. The truly horrific Depression of 1873, which made our First Great Depression seem like a picnic, was on a gold-based regime. Both of them were. Gold was simply a commodity, first, that was the medium of exchange for international transactions, second.

I am saying we must think for ourselves, with brutal intellectual honesty. Gold’s price was manipulated, and, in an extreme example of gold price manipulation, gold itself has been confiscated. I started with Leibniz, and from there went to Carey, and Schacht, who wrote a book in 1963 (?) that might prove most educational. From there I realized the deep intellectual dishonesty that is at the center of “free-market/libertarianism” models of economics, and human nature. Finally, I realized the so-called ecological economists have the most accurate models of human economic behavior. “For The Common Good” by Cobb and Daly is an excellent outline, and will force you to realize the limits of historical economic analysis. If more accurate models come along, I will be glad to adopt them.

I don’t want to do Board Wars, particularly with Dr. North. I admire his deep intellectual honesty, yet reject pretty much in toto his theonomism as being all but a parody of Christianity. The Kinists have addressed their concerns with Dr. North’s position of race from a Biblical perspective, and the SpiritWaterBlood website does an excellent job of dealing with North’s critique of a racial perspective based within Christianity. Dr. North’s economic theories are good up to a point, but past that point, they simply offer critique, at the price of the substance of substantial criticism.

Historically, recessions are the working off of excess inventories; depressions are moments of solidifying the transformation of the financial system. A gold-based solution, which the IMF seems to support in all but name, will be deflationary on a scale that literally boggles the mind. Ironically, of course, the IMF was established to deal with the Versailles restitution. Schacht adopted Leibnizian models, and saved the foremost flowering of Western Civilization for as long as he could. I suspect the person who can adopt ecological economic models to the foundation of the New Economy (say, of twenty or thirty years from now) will be the great herald of a new economic day, as, once again, finance serves the economy, and not the other way around.

In the meanwhile, I would accept the Christian compassion of social credit, properly applied, to the cold ruthlessness of those who make gold their temporal God, by worshipping the no less manipulated gold standard for human affairs. To see what faith men really place in gold, go to a place where they sell gold. Buy some. Now try to buy something paying for it only with the gold you have. Surprise! The people who sold you the gold accepted US dollars – yes, the evil Federal Reserve Notes – and they will only accept payment in Federal Reserve Notes. That shows their faith in gold. To them, it’s only a tool.

In the absence of social credit, I would prepare for the economic equivalent of a Cold, Dark Winter. Mark to market – “free market,” that – insures a deflationary depression just like Ben Bernanke all but admitted was coming last week.

Yesterday’s thinking will not solve tomorrow’s problems. I have too many family members facing deep financial hardship, and fear the simplistic solutions offered by Dr. North, and Milton Friedman, and others of their philosophy, will only compound the human misery that is here, and that is to come.

Deflationary depression. It’s been here, but masked by credit expansion. Now, the bankers will practice credit contraction, and the demand for business credit will match it, and then some. Look at the dramatic decline in the velocity of money. Winter Is Coming. The Old Order is passing, and opportunity presents itself.

Kerry Bolton is offering the outlines of one possible compassionate solution. Would you crucify the future of our Children on a cross of gold?

Schacht didn’t. His solution might have elements of a solution we can adopt, and adapt. And, bluntly, theonomists make poor economists. It all makes perfect sense, until it has to be applied in the real world. Let’s follow the excellent advice of John (NEW Testament! Christianity!), and bury the dead, with the dead.

A quick comment, while my blood pressure is still under control. Ignore, for the moment, GATA’s documentation of the price fixing of gold, the nominally independent measuring stick of economic value. Let me address a much more substantial issue.

Let me give you four words you will NEVER hear in a “free market” society:

These matters were debated eighty-plus years ago, and subjected to questioning before Government commissions of enquiry.

Describing public credit, social credit, or whatever one wants to call it as “Left-wing” and as having infiltrated the genuine conservative movement is a red herring. If the State, or a state sanctioned public credit authority does not assume control of credit creation the alternative is what we have – control by the globalist elite, whose system relies on the debt finance system.

Talk of printing fiat money is also a red herring. The mechanisms for the issue of public or social credit were devised long ago, and as I have shown in this series, utilised successfully by a number of states, which achieved prosperity without inflation. Such a financial system sustains and expands private enterprise and property.

One might suspect that what is often, especially in the USA, NZ, and Britain, called the “conservative movement,” is libetarianism, which really did infiltrate and derail the Right or palaeoconservativism. If one is to refer to movements that have subverted the Right then it is free trade, which Marx supported as helpful to dialectics. (See The Communist Manfesto).

Making gold and silver the basis for currency and credit makes no sense. The basis for credit is labour and productivity, since credit is a conventient means of exchange rather than carrying a sack of potatos about to exchange for eggs and cabbages. Usury charged on interest is a scam, the ultimate parasitism, and was condemned as sin by the Church for Centuries, before that too succumbed to the banality of social liberalism.